What is so extraordinary about the Budget is not just the magnitude of the deficits (national debt rising to a staggering £1.2 trillion, Treasury borrowings this year of £175bn), but the acceleration of the decline over the last year. A year ago the Chancellor predicted growth of 2.5% a year; the actual out-turn has been a contraction of 3.5% – an error of no less than £90bn in Treasury expectations. The Chancellor had earlier said he expected growth to resume in mid 2009; now the Treasury expects unemployment to go on rising to reach at least 3 million by the end of 2010. And judging by experience of the last year, all these predictions may turn out to be under-estimates, perhaps by some considerable margin. This is not only the longest and deepest recesssion since the Second World War, but it also casts forward the longest shadow, with austerity enveloping the next 4 years even to get the annual borrowing down below £100bn. For that reason the biggest issue raised by the Budget was how exactly that enormous squeeze in the nation’s finances is to be carried through. Alistair Darling’s proposals are not encouraging.

The squeeze on the rich is really quite modest and only took all the headlines because it seemed to discard the Mandelson dictum that ‘New Labour is very relaxed about people being filthy rich’. In fact a 50% rate on earnings above £150,000 hits a very small number and will raise little more than £0.5bn. Halving the personal allowances above £100,000 is similarly a fairly unpretentious measure. For someone on £200,000 a year among the 0.5% highest paid in the country, the extra tax will only be £633 a month – a fleabite out of an income of £16,670 a month. On the other hand, tapering down the tax relief on pension contributions of those with incomes above £150,000 a year is a long-overdue measure of equity which will also raise substantial revenue of over £3bn a year.
Even so, this does not amount remotely to a New Labour conversion to redistribution. For that several other measures would be axiomatic. There is nothing in the Budget about ending the scandalous non-domicile rule whereby some 114,000 persons, many of them ultra-rich with total wealth estimated at £126bn, use this country for their money-earning, but pay no tax. A real shift towards redistribution away from spawning an inequality as extravagant as in the Edwardian era would require not gestures, as today, but a serious hypothecation of resources towards pensioners and the low-paid – equitable rates of tax of perhaps 50% on income over £100,000 and 60% over £150,000. It would require a capital gains tax on City boardrooms rather higher than the tax paid by their cleaning ladies. And it would require an immediate crackdown on UK-controlled tax havens, without waiting for G20 pledges to be fulfilled which could take forever, since this could well raise £5-10bn a year. The trouble is, New Labour doesn’t really have its heart in it.
Why this matters is that letting off the rich so relatively lightly (certainly compared with 3 million who are losing their jobs) means that more of the load of economic retrenchment will have to fall on public service cuts which will damage the quality of life for everyone else. That includes cuts of £1.4bn in education, £0.5bn in health, and £1bn in frontline policing, as well as £0.5bn in rail maintenance, £110m in fire services, and £50m in environmental flood and coastal protection. Today’s budget is an acknowledgement belatedly that New Labour’s values were both unsustainable and unjust. But restoring real justice in British society will still require a major transformation of the Labour Party out of the shadow of the Blairite interregnum.

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